That was in September 1943, with Norman of course still governor, but now more or less accepting that he really would retire in 1945. Early in 1944, however, his health decisively gave way, and only penicillin – a remedy then available to few – kept him alive. ‘One thing that would be intolerable would be to go back to work,’ he wrote in March to Peacock during his protracted convalescence, ‘& then to crack again.’ Soon afterwards, Peacock and Holland-Martin saw Norman’s two doctors, who informed them that the governor would not be fit to resume his duties even in three months’ time. It was a verdict that he yielded to with infinite reluctance. ‘It’s not going back that will kill me,’ he told Peacock, but on 6 April the Bank let it be known that Norman was finally retiring, with a successor to be in place the following week. ‘We could never build the new Britain with Mr Norman in Threadneedle Street, so there will be no tears among the people at this parting,’ declared the unforgiving Sunday Pictorial; but the Financial News was kinder, reckoning that he was leaving behind ‘a tradition of service, efficiency and sincerity which will long be an inspiration to those who follow’. What no one could deny was his place as the dominant figure in the Bank’s history; some time afterwards, Humphrey Mynors whiled away a few idle minutes by computing that the span of the Bank’s first quarter of a millennium was virtually covered by only six members of Court: Gilbert Heathcote (1694–1733), William Hunt (1728–63), Richard Neave (1763–1811), John Horsley Palmer (1811–57), James Pattison Currie (1855–1908) and of course Norman (1907–44).
All this was little consolation to either the man himself or his ninety-six-year-old mother. ‘They should have let him finish his twenty-five years,’ she grumbled; and it was with some lingering bitterness that in February 1945 the ennobled Norman, writing to a former colleague now at the BIS, referred to how he had been ‘turned out a year ago’. Ultimately, as he left the stage, he believed himself to have failed – unable to re-create the world economy’s (and the City’s) golden age, let down by nationalist demagogues, vote-grubbing politicians and ill-tutored democracies. Until his death in 1950, he remained unsparing on himself and indeed his generation of central bankers. ‘As I look back, it now seems that, with all the thought and work and good intentions which we provided, we achieved absolutely nothing,’ he reflected in 1948. ‘By and large nothing that I did, and very little that old Ben did, internationally produced any good effect – or indeed any effect at all except that we collected money from a lot of poor devils and gave it over to the four winds …’ Yet there is truth also in what his one-time private secretary, Ernest Skinner, wrote twenty years later:
When the dogs have ceased to bark (!), I think we shall be left with the lasting impression that Montagu Norman –
(1) was conspicuously a great public servant of unquestioned integrity;
(2) at a critical juncture (with his customary vision) evolved a new structure for the direction and higher management of the Bank;
(3) by his initiative galvanized central banking throughout the world and gave it the international outlook from which we are now in benefit.
‘The records,’ added Skinner with a not wholly ill-founded degree of optimism, ‘provide the proof.’27
Back in 1941, the Economist had devoted a lengthy editorial to the question of what sort of person should succeed Norman. It offered three broad criteria: that, with rotation in effect dead, the appointment should be on a more permanent basis; that, in the context of the passing of the gold standard and accompanying need to ‘husband the gold reserve’, the next governor should be ‘an economic statesman’, preferably with a ‘dominating interest in the finance of British industry’, rather than an out-and-out ‘financial expert’ as such; and thirdly, that he should be ‘a young man’, not least because of the ‘revolution’ in the past ten years in monetary ‘thought and practice’, given that ‘for any banker or financier whose mind was set before 1931 it is almost impossible to change such beliefs as, for example, that exchange stability in a free market is the only natural state of the foreign exchanges, or that dear money has a higher ethical justification than cheap money’. With Niemeyer a no-go because of Churchill’s undying hostility (1925 again) and Cobbold too young (not yet forty), a serious executive search began in May 1943, as the chancellor, Sir Kingsley Wood, pushed hard (probably influenced by Keynes) for the Bank of Canada’s Graham Towers. That autumn saw, however, not only Wood’s death but the Committee of Treasury deciding that the Canadian was unsuitable on several grounds: as an outsider, not qualified to be ‘“Confidant and Confessor” to the City’; the fear that his appointment ‘would be regarded either as a political appointment, thus bringing the Bank right into the political arena, or as confession that both the Bank and the City of London were so bare as to provide no adequate candidate’; the accompanying worry that, Towers having presided over the Bank of Canada during its nationalisation, ‘his appointment might well be regarded as a pointer towards a similar change here’; and finally the disconcerting fact of his ‘essentially “dollar” background’, which made him ‘publicly committed to post-war plans which many of us feel would prejudice the international position of sterling’. Or as Norman characteristically put it in his diary that day, Towers was altogether ‘too much JMK & $’. Instead, the focus switched to Thomas Catto, from 1936 Lord Catto of Cairncatto, who in 1940 had at last succeeded his Morgan Grenfell colleague Lord St Just as a director of the Bank. During the war he was based in the Treasury, where, though forging a close alliance with Keynes (‘Catto and Doggo’ as they were known), he was trusted by Norman to protect the Bank’s interests. After Norman’s illness hastened events, the only realistic alternative to him was the deputy governor, Basil Catterns; but when Peacock in March 1944 consulted the chancellor, Sir John Anderson, the latter’s distinct preference was for Catto, on the basis of his greater ‘worldly knowledge as to affairs in general and especially as to Whitehall’.
So Catto it was: born 1879, seventh child of a shipwright, left school at fifteen, and eventually a successful merchant (first in the Near and Middle East, then in India) before being based in London from 1929 – a very different trajectory to almost all his predecessors. ‘One of the smallest men I have met,’ recorded a diarist in 1945. ‘Dapper, alert, sharp-eyed, Scots accent.’ Undoubtedly some of the Bank’s permanent officials would come to feel that Catto was over-respectful of the Treasury, but almost all valued the depth of his commercial experience, the soundness of his judgement and the fact – at this delicate moment in the Bank’s history – that he was neither a government stooge nor an entrenched, hereditary member of the City establishment. ‘I shall love the work,’ this self-assured, self-made man promised the Daily Express just before he assumed office. ‘I love figures, economics and finance. I never read books except those which deal with these matters, even when I read for pleasure and recreation.’28
In July 1944 the Bank briefly gazed backwards, as it celebrated in a low-key way its 250th anniversary, but generally the mood during the closing stages of the war was one of looking forward. Quite apart from the issue of the Bank’s own status, two policy areas were now of particular importance, as indeed they had been towards the end of Norman’s governorship. The first concerned the provision of capital to medium-sized firms – the so-called Macmillan gap. Norman, writing to a sympathetic banker at the start of 1944, was frank about his motives for seeking to fill that politically high-profile gap: ‘My purpose is to satisfy Whitehall: to keep them out of the Banking Business and free of malevolence towards the Bankers – which at this moment are stakes worth playing for.’ The eventual upshot in 1945 would be the Industrial and Commercial Finance Corporation (ICFC, forerunner of the latter-day 3i), an outcome made possible only by Catto devoting much of his early time in the governor’s chair to persuading the bankers that the gap existed and that they had politically no alternative but to come together and give their financial backing to the proposed new organisation. ‘There is no suggestion,’ he assu
red them, ‘that this should not be run on a strictly commercial basis’; and with some reluctance the deal was done, as the ‘Big Five’ (Barclays, Lloyds, Midland, National Provincial and Westminster) became ICFC’s main shareholders.
The other key policy area, playing its part in the blackballing of Towers, was the reconstruction of the international financial order. There, whatever the improved personal relations, a huge gulf remained between Keynes and the Bank: whereas Keynes, in tandem with the Americans, developed plans for an international monetary fund that would be based in the US and apparently transcend existing structures of central banking co-operation, the Bank still tended to hold to a view of the world in which the importance of the sterling area was paramount. ‘The Bank is not facing any of the realities,’ Keynes complained in February 1944 to the chancellor, arguing that it was failing to allow either ‘for the fact that post-war domestic policies are impossible without American assistance’ or ‘for the fact that vast debts and exiguous reserves are not, by themselves, the best qualification for renewing old-time international banking’. Soon afterwards, he poured out to Beaverbrook frustrations that went back a long way:
Twice in my life I have seen the Bank blindly advocating policies which I expected to lead to the greatest misfortunes and a frightful smash. Twice I have predicted it; twice I have been disbelieved; twice it has happened … My conviction is that here is a third occasion. The Bank is engaged in a desperate gamble in the interests of old arrangements and old-fashioned ideas, which there is no possibility of sustaining. Their plan, or rather their lack of plan, would, in my firm belief, lead us into yet another smash.
Ultimately he need not have worried: not even Bank of England obstruction could stop the International Monetary Fund (designed to stabilise exchange rates – ‘with the countries experiencing difficulty,’ as the historian Forrest Capie puts it, ‘having access to adequate international reserves to smooth out short-term problems’) from being created; nor indeed its cousin the Bank for Reconstruction and Development (the future World Bank, designed to provide long-term loans). The pivotal international conference was in July 1944 at Bretton Woods, with the Bank (represented by Bolton) only a bit-player in the process but managing to secure what became known as ‘the Catto clause’ – in effect a reluctant acceptance by the US that, even in a world run by the almighty dollar, other nations had the right, as a last resort and in consultation with the IMF, to vary their exchange rates. Catto himself was nothing if not a realist. The following spring, in a note on post-war commercial policy, he reflected that it would be ‘sheer madness to think the Empire can create a cave where we take in one another’s washing and ignore the rest of the world’.29 Put another way, there was a fundamental choice to be made, financial as well as commercial. Was the whole world to be Britain’s (and especially the City’s) oyster, as it had been before 1914 and even up to 1931? Or, with the dollar now conclusively dominant in global terms, was the safer – and sentimentally more appealing – course to rely almost solely on the sterling area? One way or another, it was a question that, despite Catto’s clear steer, would take the Bank and other policy-makers at least two decades to resolve.
‘One pleasant sign of returning normality was the mounting of the Bank of England Guard on September 6th by the Brigade of Guards for the first time since the outbreak of war,’ noted the Banker in October 1945. ‘In wartime, there has been no “March to the Bank”, the Guard having been converted into a day and night guard and the duties taken over first by the Honourable Artillery Company and subsequently by the Military Police. Now, once again the familiar spectacle may be seen towards dusk each evening of 24 Guardsmen with fixed bayonets, led by an Officer, marching towards the Bank of England to protect it during the night.’ By this time also, the evacuees were back from Hampshire, while among new members of staff was Pat Jarrett, who had been appointed as a ‘Woman Clerk’ shortly after V-E Day. ‘The lunch club was the thing which came into the lives of all of us,’ she would explain in 1949 to colleagues at Seattle First National Bank about a stay in Threadneedle Street that lasted only sixteen months but left vivid impressions:
For 20c a year you were a full member and, naturally, everyone belonged. You were provided with an excellent lunch every day, and ‘tea’ in the afternoon. If you worked late, after 6.30 p.m., there was also a very good dinner.
The club rooms were built on the flat roof of our office building, and were very pleasant. On leaving the elevator one walked right into the Lounge Bar, where one could pass a few minutes in social chatter and refreshment before proceeding to lunch. After the bar the Great Divide appeared – men to the left and girls to the right.
We had a very pleasant coffee room, too, and a reading and writing room in which to pass the remainder of our lunch hour, and I conclude that the men had the same facilities; however, no feminine foot ever crossed the threshold to find out!
Time-keeping was very strict and to-the-minute. Upon arrival we had to sign in a book on the principal’s desk, and at 9 a.m. precisely it was whisked away. Anyone who came in late had to go to a special book held by the head of the office and sign in as ‘late’, and give her reason. Twice was too much for that sort of thing!
Then in the evening one could not leave until a senior clerk stood up to go (which was always on the exact second), and then there was one mad rush for the elevators.
‘No one’, she almost needlessly added, ‘felt inclined to finish the job in hand or give a few extra minutes to anything, for the attitude was one of “come on the minute – leave on the minute.”’30
Such concerns were not Catto’s during the early months of peace. The Bank’s future constitutional status was hardly a headline issue during the 1945 election campaign; but whereas Labour was explicitly committed to the Bank’s nationalisation, Churchill in his infamous ‘Gestapo’ radio broadcast sarcastically warned of the dangers of the Bank falling into the hands of ‘trustworthy Socialist politicians’. Labour under Clement Attlee won by a landslide, and within days, at the start of August, the governor was stressing to the new chancellor, Hugh Dalton, his hope that ‘the method giving the least possible disturbance to the existing set-up would be chosen’. At this critical juncture, Catto received significant help from the permanent officials at the Treasury, where Sir Wilfrid Eady argued soon afterwards that ‘there is everything to be said for viewing the Bank as a public corporation, subject to control on policy but not to interference in the running of the machine’, given that ‘the more the permitted independence on inessentials the easier will it be for the Bank to maintain its intimate relations with other parts of the financial system and with City interests’. From Catto’s perspective, there was certainly no point in trying to resist public ownership as such: not only did the government have an overwhelming mandate, but the new leader of the Opposition now changed his tune, with Churchill telling the Commons in mid-August that ‘the national ownership of the Bank of England does not in my opinion raise any matter of principle’ – a statement prompting an ‘Oh’ from some MPs.
Serious negotiations were by this time under way between the booming, seemingly self-confident Dalton and the canny, obstinate Scot whom the politician privately described as ‘a splendid little asset’. It was with justified pride that Catto would subsequently boast (to a diarist who met him) of ‘how he had succeeded in keeping things surprisingly unchanged in daily practice, how he had held to a refusal to disclose secret reserves to the government, how he had got compensation for stock-holders which left their income unaffected, how the “halo” of mystery and power was an asset which he had preserved’; he might also have added that, on the key question of the issuing of directives to the clearing banks, the Treasury would in effect be permitted to do so only via the Bank and not off its own bat. Why did Catto get the better of Dalton? Partly no doubt because the chancellor was underprepared for the technicalities involved, but at least as important may have been the human element. ‘Dalton was frightened of him
,’ reckoned Kim Cobbold in considering the governor’s decisive advantage. ‘Dalton had a guilt-conscience about his upbringing as a canon of Windsor’s son, Eton etc, whilst Catto started work on an office stall in Scotland. Though he was apt to be offensive and overbearing to people of his own background and to “establishment” officials, Dalton seemed to feel that his attacks on privilege, etc, would not stand up to a public row with Catto.’
The Bill was published on 10 October. Apart from the actual transfer of stock and related mechanics, it had three key clauses. The first dealt with the Treasury’s power to direct the Bank: ‘The Treasury may from time to time give such directions to the Bank as, after consultation with the Governor of the Bank, they think necessary in the public interest.’ The second clause dealt with the Bank’s authority to direct bankers: ‘The Bank may, if they think it necessary in the public interest, request information from and make recommendations to bankers, and may, if so authorised by the Treasury, issue directions to any banker for the purpose of securing that effect is given to any such request or recommendation.’ The third clause stated that ‘the affairs of the Bank shall be managed by the Court of Directors’ – as opposed, implicitly, to being managed by government or any other external agency.
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